Equity Liquidity and Firm Investment: Evidence from Pakistan

Abdul Rashid () and Maria Karim

Journal of Accounting and Finance in Emerging Economies, 2018, vol. 4, issue 2, 111-122

Abstract: This paper examines how equity liquidity affects firms’ investment decisions. We use an unbalanced panel data for a sample of 360 non-financial firms of Pakistan for the period 2001-2016. We apply the Hausman specification test to identify whether fixed or random effects model is appropriate. Using two alternative measures of equity liquidity, we find that equity liquidity has a significant positive impact on firms’ investment decisions. We also show that several firm-specific factors are significant in determining firms’ investment policy. The findings of the paper have significant implications for both policymakers and firm managers. Our results support the liquidity premium hypothesis.

Keywords: Pakistan; Hausman Specification Test; Fixed Effects; Non-Financial Firms; Firm Investment; Stock Liquidity (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:src:jafeec:v:4:y:2018:i:2:p:111-122

DOI: 10.26710/jafee.v4i2.523

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